Short selling ban from France and Italy will aggravate the problem
August 12, 2011 - Short selling ban from France and Italy effective from August 12, 2011 will aggravate the problem.
Uptick rule is much appreciated compared to completely banning short selling. The reason is there will not be any market volatility. There is no pressure on short sellers to cover their position if they are forced to do so. When short selling is banned, only the investors with long positions are considered safe. Nevertheless they would be in much more trouble because the stock price will not move up. Consequently the frustrated investors would start selling the stocks to another investors and they will hold for some time, they will also get disappointed.
The stock price will be in depression level until its price level really attracts institutional investors and hedge funds. Banning short selling would help stocks to go down slowly but they will never rebound in the short term and thus eliminates the volatility.
To counter attack the programmed or algorithmic trading, exchanges can introduce up tick rule for short selling. Banning is not a good idea. Novice investors need to learn on hedging their positions when there is a huge volatility in the stock market.
Posted on August 12, 2011